Administrators have been called in to sell the assets of Powerfuel, which owns Hatfield colliery near Doncaster and planned to build a clean-coal demonstration plant in Britain.

The firm is owned by the mining entrepreneur Richard Budge – known as "King Coal" – and the Russian coal group KRU. Despite being selected by the European Union to receive £164m for the project, it is £635m short of the money required. The plant would have been fitted with carbon capture and storage (CCS) technology, which prevents carbon dioxide being released into the atmosphere.

The news is another blow to hopes of introducing large-scale CCS technology to Britain soon following the decision by the energy group E.ON in October to withdraw its Kingsnorth project from the competition to build a demonstration facility.

Powerfuel also needs another £30m to carry out work on the Hatfield mine, according to KPMG, which was today appointed to find buyers for the two Powerfuel businesses. KPMG said neither was in administration and none of the 380 staff at the mine have been made redundant.

Richard Fleming, joint administrator and UK head of restructuring at KPMG, said: "Developing low-carbon energy generation requires a large amount of capital up front and the CCS development falls £635m short of the investment needed to progress the project beyond the preliminary stage.

"The substantial funding gap has not been addressed in the past 12 months and accordingly the project has stalled. The administration will enable a sales process to find a new owner, who can both take the CCS project forward and buttress the mine, which also requires around £30m of capital expenditure."

Powerfuel is the only company to be awarded a licence to test the CCS technology in Britain. The government in October finally committed £1bn for the UK's first CCS demonstration plant, likely to be developed by ScottishPower. It says it remains committed to putting levies on consumer bills to fund up to three more projects but it is not clear when the funds will be made available. It is likely that Powerfuel would have applied for funding for these later stage demonstration projects.